Nationwide Building Society
Interim Results
for the period ended 30 September 2024
Contents
Page
Chief Executives review
4
Performance summary
7
Financial review
8
Risk report
15
Condensed consolidated interim financial statements
62
Notes to the condensed consolidated interim financial statements
68
Responsibility statement
92
Independent review report to Nationwide Building Society
93
Other information
95
Contacts
95
Introduction
Unless otherwise stated, the income statement analysis compares the period from 5 April 2024 to 30 September 2024 to the corresponding six months of 2023 and balance sheet analysis compares the position at 30 September 2024 to the position at 4 April 2024.
Underlying profit
Profit before tax shown on a statutory and underlying basis is set out on page 9. The purpose of the underlying profit measure is to reflect managements view of the Groups underlying performance and to assist with like-for-like comparisons of performance across periods. Underlying profit is not designed to measure sustainable levels of profitability as that potentially requires exclusion of non-recurring items even though they are closely related to (or even a direct consequence of) the Groups core business activities.
Forward-looking statements
Certain statements in this document are forward-looking with respect to plans, goals and expectations relating to the future financial position, business performance and results of the Group. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, the Group can give no assurance that these expectations will prove to be an accurate reflection of actual results. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the control of the Group including, amongst other things, UK domestic and global economic and business conditions, market-related risks such as fluctuation in interest rates and exchange rates, inflation/deflation, the impact of competition, changes in customer preferences, risks concerning borrower credit quality, delays in implementing proposals, the timing, impact and other uncertainties of future acquisitions or other combinations involving the Society and/or within relevant industries, risks relating to sustainability and climate change, the policies and actions of regulatory authorities and the impact of tax or other legislation and other regulations in the jurisdictions in which the Group operates. The economic outlook remains uncertain and, as a result, the Groups actual future financial condition, business performance and results may differ materially from the plans, goals and expectations expressed or implied in these forward-looking statements. Due to such risks and uncertainties, the Group cautions readers not to place undue reliance on such forward-looking statements.
The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
This document is not intended to, and does not constitute, represent or form part of any offer invitation or solicitation of any offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities or the solicitation of any vote or approval in any jurisdiction. No securities are being offered to the public by means of this document. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering to be made in the United States will be made by means of a prospectus that may be obtained from the Group and will contain detailed information about the Group and its management, as well as its financial statements.
Chief Executives review
Record growth and value to members
Debbie CrosbieChief ExecutiveNationwide Building Societysaid
"Nationwide delivered record first half growth in both mortgages and deposits, and record member value. Over the past 18 months, our mutual model has enabled us to provide over £3.5 billion in member value, including £729 million through the Nationwide Fairer Share Payment.
"Following our acquisition of Virgin Money on 1 October, weve recorded a gain of £2.3bn, as the value of net assets acquired is well above the price we paid. This gain provides significant headroom to cover our investment in integration, as well as in service and value.
"Future profits generated by Virgin Money can now be used for the benefit of customers, rather than being paid to external shareholders."
Business and trading highlights for the period ended 30 September 2024
Record first half year growth in mortgages and deposits
· Mortgage balances of £210.8bn (4 April 2024: £204.5bn), with record half year net lending of £6.3bn (H1 2023/24: £0.5bn). Market share of balances increased to 12.6% (4 April 2024: 12.3%).
· Member deposit balances increased by £8.3bn (H1 2023/24: £4.2bn) to £201.7bn (4 April 2024: £193.4bn). This was a record increase for a first half year. Deposit market share was 9.6% (4 April 2024: 9.5%).
· Continued growth in current account volumes, and a market share of 9.7%1(February 2024: 9.7%).
Leading customer service, giving customers a choice in how they bank with us
· First for customer satisfaction among our peer group for over 12 years, with a lead of 6.8%pts2 (March 2024: lead of 5.5%pts).
· We continue to have the largest single-brand branch network in the UK, supported by our Branch Promise - everywhere we have a branch, we promise to still be there until at least the start of 2028.
· More than 35% of our new current accounts were opened in branches this half year.
Mutual model delivers record value to our members
· Member financial benefit increased to £950m (H1 2023/24: £885m), from pricing and incentives that were better than the market average.
· Distributed £385m through our Nationwide Fairer Share Payments to 3.85m eligible members in June 2024.
· On average, interest rates on deposits were 30% higher than the market average, largely driven by our savings rates.
1CACIs Current Account and Savings Database, Stock (August 2024).
2Lead at September 20246.8%pts, March 2024: 5.5%pts. © Ipsos 2024, Financial Research Survey (FRS), for the 12 months ending 31 March 2013 to 12 months ending 30 September 2024. Results based on a sample of around 47,000 adults (aged 16+). The survey contacts around 51,000 adults (aged 16+) a year in total across Great Britain. Interviews were face to face, over the phone and online, taking into account (and weighted to) the overall profile of the adult population. The results reflect the percentage of extremely satisfied and very satisfied customers minus the percentage of customers who were extremely or very or fairly dissatisfied across those customers with a main current account, mortgage or savings. Those in our peer group are Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB. Prior to April 2017, those in our peer group were Barclays, Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to April 2015), NatWest and Santander.
Robust financial performance and balance sheet strength
· Underlying profit before tax decreased to £959m (H1 2023/24: £1,262m) and statutory profit before tax was £568m (H1 2023/24: £989m), primarily due to the profile of interest rates over the period and our choice to offer competitive rates.
· Total underlying income of £2,129m (H1 2023/24: £2,449m). Net interest margin of 1.50% (H1 2023/24: 1.66%), higher than H2 2023/24 net interest margin of 1.46%.
· Credit impairment charges of £7m (H1 2023/24: £54m), reflecting the resilience of our lending.
· Underlying costs of £1154m (H1 2023/24: £1115m).
· CET1 ratio of 28.4% (4 April 202427.1%) and leverage ratio of 6.7% (4 April 2024: 6.5%).
Making a meaningful impact across society
· Helped 53,000 (H1 2023/2431,000) first time buyers into a home of their own.
· Continued to commit 1% of pre-tax profits to good causes each year3, which for 2024/25 includes committing £9m to our three new charity partners, Centrepoint, Action for Children and Dementia UK, under our new Fairer Futures social impact strategy.
Acquisition of Virgin Money UK plc on 1 October 2024
Gain on acquisition of £2.3bn, resulting from a net asset value well in excess of the £2.8bn acquisition price.
· Peer-leading combined group CET1 ratio of 19.6% and combined group leverage ratio of 5.4% at 1 October 2024, both comfortably above regulatory minimums.
· A unique opportunity, underpinned by an exceptionally strong business case.
Positioning us to become the UKs first full-service mutual banking provider.
· Acquisition broadens our product range to include business banking, which we intend to offer to more customers over time.
· This will diversify our funding and strengthen us financially, enabling us to deliver even greater value for our customers, including through our Branch Promise, focus on customer service, and competitive deposit and lending rates.
Delivering scale and connecting us with one in three people in the UK.
· Now the UKs second largest provider of mortgages4 and retail deposits, with total assets of over £370 billion.
· Combined, we have £1 in every £6 of mortgage balances and hold £1 in every £8 of retail deposits in the UK.
· Now have an extensive network of 696 branches across the UK.
A long-term, measured and fully funded approach to integration.
· Acquired a profitable business so can take a longer-term approach to managing the Virgin Money business, with gradual integration following an initial 18-month strategic review.
· Gain on acquisition expected to provide significant headroom to cover costs associated with integration, investment in customer service and delivery of value under our mutual model.
· Future profits generated by Virgin Money will be fully retained within the Group, and available for investing in improving services and value for our customers, rather than being paid to shareholders.
The results for the period ended 30 September 2024 do not include the impacts of the Virgin Money acquisition. Further information is included in note 17 to the condensed consolidated interim financial statements, on page 89.
3The 1% is calculated based on average pre-tax profits over the previous three years.
4UK Finance 2023 balance database published on 31 July 2024 (latest available data).
Strategy update
More rewarding relationshipsWe will create deeper, lifelong relationships with our customers, that provide the best value in banking.
We delivered £950 million of member financial benefit, from pricing and incentives that were better than the market average, largely driven by our savings rates. In addition, we distributed £385 million through the Nationwide Fairer Share Payment in June 2024. Over the half year, we supported a record 39,000 (H1 2023/24: 14,700) students with our competitive FlexStudent current account, more than double that of the previous period. We continue to focus on supporting first time buyers, and in September 2024, we extended our Helping Hand mortgage to enable them to borrow six times their income, up to 33% more than through standard mortgages. We also increased the maximum loan to value available for purchasing a new-build house, from 85% to 90%.
Simply brilliant serviceWe will provide value beyond rates, with distinctive, personalised service our customers can trust, at every touchpoint.
We have the largest single-brand branch network in the UK, supported by our Branch Promise5. More than 35% of our new current accounts were opened in branches this half year, demonstrating the value of our branch network to customers. Our branches provide customers with choice in the way they can interact with us, alongside our digital channels, telephones, 24/7 online chat and dedicated cost-of-living helpline. We added further functionality to our new banking app, that launched in March 2024.
Beacon for mutual goodWe want to have a meaningful impact on our customers, colleagues, communities and society, by driving fairer banking practices and positive change.
We launched our new Fairer Futures social impact strategy, helping to tackle three of the biggest issues we see in society today - youth homelessness, families living in poverty and people living with dementia. We are headline partner to three key charities: Centrepoint, Action for Children, and Dementia UK, who will help us make a meaningful difference across these important causes. As part of this, we are rolling out dementia clinics in 200 of our branches.
Continuous improvementWe will be focused, fit and fast, and simplify our processes and ways of working to deliver for the benefit of our customers, while retaining resilient controls that protect our customers and their money.
We continue to drive greater efficiency across our operations and improve our customer experiences. We are enabling faster mortgage offers for customers through our new automated income verification and valuation tools, and we continue to streamline our mortgage advice service, reducing interview times for customers whilst still ensuring appropriate products and good outcomes.
Looking forward
The economic outlook remains uncertain, and the interest rate outlook means we expect to have passed peak profitability. However, lower interest rates and resilience in real earnings are supporting consumer finances which, if maintained, should support a strengthening in housing market activity and overall deposit growth. The credit quality of our lending portfolios remains strong, and our capital resources are robust.
Following the acquisition of Virgin Money, we will use our ongoing financial strength to deliver even greater value to Nationwide and Virgin Money customers, through competitive rates, focus on customer service, and our unique Branch Promise.
Debbie Crosbie
Chief Executive
5 All our 605 Nationwide branches will remain open until at least 1 January 2028. There may be exceptional circumstances outside of our control that mean we have to close a branch. But we will only do this if we do not have another workable option. We have now extended our Branch Promise to include Virgin Moneys 91 branches, following the acquisition on 1 October 2024.
Performance summary
Half year to
30 September 2024
Half year to
30 September 2023
30 September
4 April
2024
2024
Balance sheet
£bn
%
£bn
%
Financial performance
£m
£m
Total assets
282.4
271.9
Total underlying income
2129
2449
Loans and advances to customers
220.0
213.4
Underlying administrative expenses
1154
1115
Mortgage balances/market share (note iv)
210.8
12.6
204.5
12.3
Underlying profit before tax (note i)
959
1262
Member deposits/market share (note ii)
201.7
9.6
193.4
9.5
Statutory profit before tax
568
989
Asset quality
%
%
Mortgage Lending
£bn
%
£bn
%
Residential mortgages
Group residential - gross/market share
17.6
14.1
12.1
10.5
Proportion of residential mortgage accounts 3 months+ in arrears
0.42
0.41
Group residential - net
6.3
0.5
Average loan to value of new residential mortgages (by value)
73
71
Average indexed loan to value (by value)
55
55
Deposit balance movement
£bn